Eight reasons why public country by country reporting is good for business in Europe

It’s not just tax transparency campaigners and citizens who want public country by country reporting (CBCR). Businesses and investors are increasingly in favour too. Here’s why:

1. To level the playing field between SMEs and large multinationals. SMEs frequently only operate in one country and are not able to engage in profit-shifting between tax jurisdictions to reduce their taxes, and as a consequence face a higher tax bill compared to their competitor multinationals. According to the European Commission’s impact assessment, cross-border companies in the EU are estimated to pay on average 30 per cent less tax than similar firms active in only one country. Public CBCR would help to level the playing field between MNCs and SMEs, and in turn enhance SMEs’ capacity to support growth and job creation.

2. To ensure investors can understand corporate tax practices and invest accordingly. A recent report by the US FACT Coalition reveals that investors are increasingly at risk due to a lack of disclosure by MNCs on tax. Access to CBCR information would help investors to make better investment decisions, allowing them to invest into firms who enhance shareholder value through sound investments, rather than firms who rely on aggressive tax-reduction strategies. Eurosif, a leading European association for sustainable and responsible investment, has said that promoting greater “disclosure of taxes paid per country increases overall corporate transparency and allows for a more detailed analysis by investors.”

3. To extend transparency to all sectors of the economy. For certain sectors, including the extractives industries and the banking sector, mandatory reporting obligations on tax transparency already exist and are supported by business. In November 2015, Barclays and HSBC gave evidence before the European Parliament on CBCR, stating that implementing CBCR has not hampered their commercial interests.

4. To ensure a stable and fairer business environment for multinational companies. Tax scandals are not good for companies, and business leaders are increasingly recognising that an inability to explain their tax arrangements can negatively impact their business reputation and brand. It is for perhaps this reason that PwC’s 17th Annual CEO Survey found that six out of ten CEOs (59%) agree that “multinationals should be required to publish revenue, profit and tax disclosures on a country by country basis.” According to the same survey, only two out of ten surveyed CEOs (19%) opposed CBCR.

5. Because country by country reporting will not harm the competitiveness of EU firms. The costs associated with providing public CBCR information are very small, and companies will not be required to divulge commercially sensitive information (see Q&A). Lowering the fiscal pressure on SMEs, who provide 85% of jobs in the European Union, could meanwhile improve the competitiveness of our smaller firms in Europe.

6. Because many companies are already choosing to be voluntary tax transparent and this trend is set to continue. For example, Vodafone, Deutsche Telekom, and SEE already publicly provide some CBCR information. Moreover, given the growing public interest in the way corporates manage their tax affairs, this trend can only be expected to continue. In 2017, Norway’s sovereign wealth fund, the largest of its kind in the world, set out clear expectations in new guidance to the multinational companies in which it invests, that they should pay their taxes where they generate their economic value and that they should publish their CBCR information.

7. Because tax is not too complicated to explain. Country by country reporting offers an opportunity for multinational companies to explain their tax structure to increasingly concerned EU citizens. Multinational companies can add narrative to their reports in order to give a more nuanced view to their customers on how they arrange their tax affairs. As Jane McCormick, KPMG’s Global Head of Tax, wrote in her evidence to the European Parliament’s Committee on tax rulings: “As with any other business practice, if companies can’t explain what they are doing on tax than either they shouldn’t be doing it or they need to get better at communicating.”

8. Because most companies recognise the need for enhanced transparency. In September 2015, Christian Aid produced a survey of FTSE-100 companies’ views on country by country reporting. The survey (to which 54 FTSE-100 MNCs responded) found that only a minority of FTSE-100 companies were clearly and unequivocally opposed to public CBCR. Based on the company responses to the Christian Aid survey, “it is clear that many FTSE-100 companies are committed to transparency in their tax affairs, and that most companies are either positively in favour of a move towards CBCR, or do not have strong objections to legislation.”

To read our full Questions and Answers document on the business and investor case for public country by country reporting, please click here.